What is NCD (Non Convertible Debentures)
Investors are continually looking for new investment avenues, especially in a market where conventional investment instruments and sometimes falter in a volatile market. One such attractive proposition that can help you manage liquidity and risks while offering significant profits are nonconvertible debentures (NCDs).
What is NCD?
Nonconvertible debentures meaning, NCDs are financial vehicles issued by reputed companies for a specified period of time with a guarantee of a fixed interest to investors. Unlike standard debentures, nonconvertible debentures cannot be transformed into equities or company shares.
The company that issues the NCD decides on the interest rates. On maturity, investors receive the principal amount and the interest together. Nonconvertible debentures can be held by individual investors, banking institutions, primary dealers, unincorporated establishments, registered corporate bodies and other bodies incorporated in India.
Companies issuing upcoming non convertible debentures in the market, do so to raise funds from the public. These NCDs can be secured or unsecured. Secured nonconvertible debentures are supported by the issuing company's assets to accomplish the debt responsibility. Hence, if the company fails to pay its investors, they can claim the payment by liquidating the company's assets. On the other hand, unsecured NCDs are ones that are not supported by the company's assets. Thus they hold far higher risk than secured NCDs.
Features of nonconvertible debentures:
Typically, the interest rate of NCDs overs between 10 to 12%. Fixed deposits on the other hands could offer a maximum of 8% returns. Hence, compared to most investment options, NCDs can be lucrative due to its high-interest rates. However, how credit rating agencies grade a company’s NCD can be inversely proportional to the interest, it provides. For instance, a highly rated NCD could provide low-interest rates. But compared to corporate fixed deposits, bank fixed deposits and government bonds that give a maximum of 8% returns; nonconvertible debentures offer returns up to 11%, which makes it an attractive investment instrument.
Pay out options
If you are looking to invest in nonconvertible debentures, you can benefit from a variety of interest pay out options such as on a monthly basis, quarterly, six-monthly or annual basis. Typically, NCDs could mature from 90 days to 20 years. Hence, you have the opportunity and flexibility of choosing short and long-term tenures depending on your investment objectives.
Non convertible debentures are listed on stock exchanges and offer secure withdrawal options. Redeeming your investment from NCDs can be easier than bank fixed deposits, and hence, can be considered as providing better liquidity than FDs.
A company that offers nonconvertible debentures through open issues can be purchased within a specified timeframe. Similarly, NCDs can also be purchased from the stock market. To understand what is ncd in stock market, you may want to look into the open stock market and exchanges for easily tradable NCD options.
Stringent credit rating
NCDs are only authorised to be issued by companies that have good credit ratings. Credit rating agencies rate NCDs and revise ratings regularly.
Things to consider before investing in non convertible debentures
It is critical to understand how NCDs can be vulnerable to risks. These risks could be related to how a company's business is handled and how it utilises its funds. An NCD’s credit rating could take a hit if the company's turnover is impacted negatively. To address the impact, companies then borrow additional funds from banks and lending institutions. This is why it is critical to consider a few points before investing in nonconvertible debentures. These include:
Issuer's credit rating
Opt for a company that has a credit rating of AA and above. The score is a crucial indicator of the company's potential to raise funds from external and internal operations. The rating is also evidence of the company’s sustainability. Credit rating is a valid parameter that can expose the financial position of the company.
It is essential that you conduct background checks on the asset quality of the organisation if you are considering to invest in its nonconvertible debentures. If a company is allocating more than 50% of its entire assets in unsecured loans, it can be a sign to stay away from such companies.
Capital Adequacy Ratio or CAR looks into the company's capital and calculates if it has adequate funding to outlive potential losses. It can be an excellent idea to look into the company you plan on investing to see if it has at least 15% CAR. Alternately, you must also ensure that the company has historically maintained the CAR over a period of time.
Looking to NPAs
A company issuing NCDs must set aside at least 50% of their assets towards Non-Performing Assets or NPAs. This can be an optimistic indicator of the company's asset quality. In the event that the company's quality declines due to bad debts, you may want to take it as a warning.
A company's ability to settle the interest on any of its debts at any given time can be witnessed in its Interest Coverage Ratio or ICR. The ICR of a company reveals how it can handle potential non-payments.
If you belong in the 10% and 20% tax plan, you may find nonconvertible debentures as a lucrative investment option. This is because, if your tax bracket is low you stand to earn more from NCDs.
There is a marked difference between fixed deposits and non convertible debentures. It can be an excellent idea to look into specific factors before selecting an NCD as an investment option. Consider the company's financial health and how it employs its funds if you notice a diversion from its core business; it can be a sign to stay away from the said company. Going through the credit rating of companies can also give you a fair idea of how your investment is secured. For instance, you may want to steer clear from companies that have low ratings but temptingly attractive, high returns. Such propositions could be risky in the long run, especially if the overall financial health of the company is not stable.
Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
Share Market - How to invest in share market
Have you been thinking about buying shares but do not know how to invest money in the share market? Then you have come to the right place. In this article, we will tell you all that you need to know regarding the DOs and DONTs and how to invest in the share market. Why is an investment in the share market a smart decision?Many market experts feel that investing in the share market is the only towards building real long-term wealth. Read on to know the top reasons why you should venture into the share market and the benefits associated with it:• Ownership (at least a certain percentage) With shares, you gets the twin benefits of dividend and ownership. • No need for negotiation In the case of shares, you see clearly what you need to pay. There are no hidden charges or scope for negotiation. This makes the buying process quicker and more transparent. Brokerage or such associated costs are also minimal. Hence, you can be assured that a big chunk of the investment does not go towards associated costs or operational expenses. • Potential for a higher return Share markets have the potential to generate a much higher return than conventional investment avenues such as Bank deposits, Fixed Deposits, etc. You just needs to choose the right stock to invest in and be willing to absorb some degree of risk. Investments in the share market bear extremely sweet fruits for you in the long-run. How to invest in the share market?Before we answer your question on how to invest money in the share market, you need to know the pre-requisites and procedures involved.• Identity Proof (PAN Card or Aadhar Card) To be eligible for investment in the share market, you need to have a PAN Card or an Aadhar Card. These are mandatory documents for the Know Your Customer (KYC) process of SEBI. Also as per the new rules for opening a Demat account, one needs to furnish a canceled cheque along with your bank statement (for the last six months).It is also important to make sure that the information mentioned in these documents is correct and up-to-date. So, You must check the details such as name spellings, contact details, etc. to ensure there are no issues later. • Contact a broker Trading on the share market is not open to all individuals. Only some people are authorised (by the central regulator –SEBI) to perform trading (buying and selling) of securities. These intermediaries are referred to as brokers. They can be individuals, firms or agencies registered with SEBI. Hence, any interested investor needs to reach out to a broker to invest money in the share markets. They also assist the investors in completing the formalities involved in making investments in the share market.Brokers levy a service charge or brokerage for rendering their services to the investors. • Demat and Trading AccountA Demat account is an account that will hold the shares in a non-physical electronic format. The Demat account number needs to be quoted for all stock market transactions to allow electronic settlements. It is mandatory to have a Demat account to trade on the share market. Shares can no longer be held in physical format. Similar to a bank passbook, any transactions (buying or selling) will be debited or credited in the Demat account. A trading account is used to place the trade (invest or sell) orders in the share market. Its purpose is different than a Demat account. A Demat account acts as the bank in which shares purchased are deposited and shares sold are taken out. It is a storage house. Trading Account, on the other hand, facilitates the trading process and acts as the link between the Demat account and the bank account. • Unique Identification Number (UIN) A UIN is required if the value of a single transaction reaches or exceeds Rs. One Lakh. For transactions below that limit, UIN is not needed. • Depository Participants (DPs) There are two depositories in India – CDSL (Central Depository Services Limited) and NSDL (National Securities Depository Limited). They act as a link between the listed companies and their shareholders. Depositories issue the shares through authorised agents known as Depository Participants (DPs). DPs can be banks, individual brokers or financial institutions. They are accountable for the final transfer of the securities. Once you have all the above things in order, you are ready to know how to invest in the share market online. All you need to do is:1. Scan the market and identify the shares or securities that you would like to invest in. One must ensure that the investment decisions are in line with the goal, investment strategy, risk profile, and investment horizon. 2. Inform the stockbroker about the details of the investment to be made. These include the name of the organisation to invest in, the number of securities to be purchased and the entry price. For instance, you want to purchase 1000 shares of a company that is currently trading at Rs. 750. However, you want to get in at an entry price not more than Rs. 600. You can instruct your broker to invest as soon as the price comes down to that level. 3. In case if any of the buy or sell orders reach their expiry date, the broker informs the investor regarding the same. 4. Once the transaction is complete, it reflects in the Demat account. 5. Dividends on shares held are directly credited to the linked bank account. Share Market Investment TipsHere are some share market investment tips to make your experience smooth and fruitful:• Do not get swayed with promises of guaranteed return. In the share market, there are no minimum or definite returns.• Check the credentials and track record of the intermediaries that you partner with. One should only deal with intermediaries who have the necessary authorizations and are registered with statutory bodies such as SEBI or stock exchange.• In the case of securities, "one size fits all" does not hold true. Hence, ensure that the investment decisions are in sync with your risk profile.• Not everything that shines is gold. Be cautious of securities that exhibit a sudden increase in trading activity or price. Also, before investing in low-priced stocks one must conduct a due-diligence of the concerned company. It is important to make sure that the price fall is justified by internal or external factors.• Maintain copies of all investment-related documentation (application forms, contract notes, communication to companies, brokers, etc.)• Do not invest in the share market based on market rumors. Similarly, do not panic sell in case the market goes down. Impulsive decisions are not fruitful for most investors. • Always check the instructions given to the broker and their understanding of the same. Now you know everything about how to invest money in the share market. However, make sure you invest adequate time and effort in choosing your broking partner. The right firm or individual can help you make the right decisions in the share market. One name that you can depend on, for these services in IndiaNivesh. Their rich experience and technical expertise enable investors to maximize the potential of their investments. They also conduct extensive research on markets and various players.So, what are you waiting for? The share market has something for everyone.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
Gold Exchange Traded Funds (Gold ETFs) - Overview & how to invest in it
Gold Exchange Traded Funds (or Gold ETFs) combine the two passions of many investors – stock trading and gold investments. They provide a channel through which you can be a part of the bullion (gold) market. The investor’s funds are invested in gold stocks but there is no physical delivery of the yellow metal. They are often referred to as open-ended Mutual Funds that invest the corpus in gold bullion. Key highlights of Gold ETFs: Gold ETFs in India started in the year 2007. Slowly but steadily they have started gaining momentum. Some of the key benefits offered by Gold Exchange Traded Funds are:1. Transparency: Transparent pricing is one of the USPs of Gold ETF. Like stock prices, information about gold prices are easily available to the general public. You can easily determine the value of their portfolio by checking the gold prices for that time or day.2. Ease of trade: Just like shares, Gold ETFs can be easily traded on the stock exchange. You need to buy a minimum of one gram of gold which is equivalent to one unit of Gold ETF. Investors can invest in Gold ETFs from any location in India. Moreover, the difference in price (due to GST) will not be applicable.3. Cost efficiencies: Unlike many investment avenues, there are no entry or exit loads with Gold ETFs. The only cost involved would be the brokerage fees. 4. Risk: Unlike physical gold, there are no storage hassles or theft fears with Gold ETFs. Additionally, gold prices are not prone to frequent fluctuations. This makes Gold ETFs a relatively safer choice. 5. Tax efficiencies: Gold ETFs do not attract any wealth tax or securities exchange tax. Also, if they are held for a period of more than one year, the gains are treated as long-term capital gains. For anyone interested in holding gold, these ETFs provide a tax-efficient alternative. 6. Diversification: Gold ETF investments can help to bring diversity in the investment portfolio. During volatile market conditions, they can help to stabilise or improve the overall returns for you.7. Collateral: Gold ETFs are accepted as security collaterals for loans or capital borrowings by many financial institutions. Why is investing in Gold ETFs better than traditional forms of gold? You do not need to worry about impurities or adulteration in the metal As ETFs are held in electronic form, there are no storage related issues or costs Easy trading on the stock exchanges and hence high liquidity Real-time tracking of investments No mark-ups costs such as making charges, wear and tear involved The price of Gold ETFs remains the same throughout the country. However, the gold prices can vary from one location to another. How does Gold Exchange Traded Fund work? The investment is converted into unit of gold basis the cost applicable at the allotment time. For instance, the cost of gold (per gram) on a particular day is Rs. 3000. Ms. X wants to invest Rs. 60,000 in Gold ETFs. Her investment amount will get translated into 20 gold units. At the back-end, physical gold acts as security for these ETFs. For example, if you invest in Gold ETFs, the entity at the back-end purchases gold. They act as the custodian for the investment and also guarantee for the purity of the metal. The stock exchanges assign the responsibility of buying and selling gold to authorised members or participants which in turn can be used to issue ETFs. These are usually large companies. As a result, these authorised members ensure that there is parity between the gold cost and ETFs. How to invest in Gold ETFs? Gold ETF investments are a simple affair.1. Choose a broker or fund manager: Many financial institutions (including banks) offer Gold ETF products. Similar to the online share trading, you would need to reach out to a fund manager or a firm which will trade on behalf of you.2. Demat and Trading Account: In order to invest in Gold ETFs, you need to have a demat account and an online trading. You can apply for these accounts online with the broker or such service provider by providing details like PAN, Identity Proof, residential proof, photograph and a cancelled cheque (for bank account linkage).3. Online Order: Once the accounts are in place, you can select the desired Gold ETF and place the order through the broker’s online portal. You can also opt for Mutual Funds which have an underlying Gold ETF.4. Confirmation: The placed orders are then routed to the stock exchange. The purchase orders are matched with the corresponding sell orders and accordingly executed. A confirmation email or message is sent to you. Who all should invest in Gold ETFs? Gold is a relatively safe and stable investment. Its prices do not fluctuate as much as equities. Hence, Gold ETFs can be a good choice for you, if you do not want to take too much risk. Additionally, since these ETFs are tradeable easily on the stock exchange, they are useful if you are looking for an investment opportunity with high liquidity. Hence, it is a good option for you to diversify your portfolio. So, if you meet the requisite objective of investment, Gold ETF is a good option for you as well. Things to keep in mind while investing in Gold Exchange Traded Funds Here are some tips that you could use while investing in Gold ETFs Gold is generally considered as a stable asset. However, you should not forget that the Net Asset Value (NAV) of Gold ETFs can also fluctuate basis market volatility As an investor, you need to bear brokerage fees or commission charges for Gold Exchange Traded Funds. Hence, you should check these costs while deciding on the broker or fund manager However, you should not make the decision on the basis of price alone. Consider the broker/ fund house’s past track record, services provided, type of clients handled etc. before choosing the service provider Do not over-invest in Gold ETFs. It is usually suggested to restrict investment in these ETFs to 10% of the entire portfolio. Final Words A smart investor knows that all that glitters is not gold. A good fund manager or firm helps choose the best Gold ETF products in India. IndiaNivesh, a well-known financial services company can help in this regard. With their rich experience in the Indian market and in-depth understanding of the financial ecosystem, they have helped numerous customers to grow their wealth and fulfill their financial goals.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
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